Analysis: EU gas solidarity complicated by lack of fuel sharing deals

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Model of natural gas pipeline, EU and Russia flags, July 18, 2022. REUTERS/Dado Ruvic/Illustration

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BRUSSELS, July 29 (Reuters) - The European Union clinched a deal this week to cope with a gas supply crisis, but to make it work member states need to establish bilateral pacts to share gas and, right now, most have no such agreement in place.

Only six such deals have been secured, leaving most of the EU's 27 countries without firm terms on how and when they would share gas in a supply crunch, or the financial compensation they would give or get for doing so.

"(Bilateral deals) are really ... the only thing that will hold at the end of the day if there is a real supply crisis," Christian Egenhofer, associate senior research fellow at the Centre for European Policy Studies, said.

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"They organise the legal stuff, the compensation, the financial but also the infrastructure constraints," he said.

Fearing Russia may completely halt gas flows, EU countries agreed on Tuesday to curb their gas use by 15% over winter, to fill storage and free up fuel to share around in a supply crisis. read more

But it is up to individual countries to sort out how that sharing of fuel will happen in practice.

EU laws oblige member states to send gas to a neighbouring state whose households or essential services like hospitals face a severe shortage. To make that happen, governments arrange bilateral deals. However, just eight countries are covered by the six agreements so far - including between Germany and Austria, Estonia and Latvia, and Italy and Slovenia.

"This is not sufficient," EU energy policy chief Kadri Simson said last month, urging countries to arrange more.

A handful of countries are negotiating new two-way agreements, government officials said. A German-Czech deal is due to be signed by winter, and Germany is working on further agreements with Poland and Italy, its economy ministry said.

But some countries heavily reliant on Russian gas - such as landlocked Hungary, which opposed this week's deal - have none. Italy and France are the EU's biggest gas users after economic powerhouse Germany. Italy has just one bilateral deal on emergency gas sharing and France has none.

A senior Italian official said the country was negotiating a deal with Greece on gas storage. The French energy ministry said "at this stage" France did not have any bilateral agreements in place.

The solidarity deals aim to avoid a panicked response if a supply crisis did strike, and reduce the risk that countries would hoard fuel and refuse to help their neighbours.

GUARANTEEING GAS SHARING

Simone Tagliapietra, senior fellow at the Bruegel think tank, suggested the EU should implement a wider compensation scheme where countries pay other member states to save and share gas.

"Without such a compensation mechanism it will be difficult to ensure solidarity," he said, adding that Europe's biggest economy Germany, which is heavily reliant on Russian gas, should be first to contribute.

Without firmer terms on gas sharing, "we might not see all the solidarity we currently see on paper turn into molecules moving around Europe," Tagliapietra added.

The idea of compensation may appeal to states like Greece and Spain, which initially balked at being asked by Brussels to use less gas to help countries that for years cultivated closer energy ties with Moscow.

Spain does not rely on Russian gas, and EU diplomats said Brussels' call for solidarity rankled in some capitals that still resent Germany's sharp criticisms of southern states' economic policies during past financial crises.

After EU countries approved the gas curbs on Tuesday, however, Spanish Energy Minister Teresa Ribera struck a more conciliatory tone, expressing willingness to reinforce Spain's liquefied natural gas import capacity "for the benefit of all".

German Economy Minister Robert Habeck also pledged, "as part of European solidarity" to keep gas flowing to its neighbours including Austria and the Czech Republic.

Germany has so far been the most active country in seeking solidarity arrangements with neighbours. As well as being Europe's biggest gas consumer, Germany's pipelines are the veins through which gas reaches many central and eastern states.

Some appear unwilling to cooperate, however. Hungary this month said it would stop exporting fuels to other countries. Poland has also struck a sceptical tone on sharing supplies.

The EU-wide deal on Tuesday was approved by all 27 members except Hungary, which also initially opposed EU oil sanctions on Russia. The agreement set voluntary curbs on gas use that can be made binding in a supply crisis. But it included a raft of exemptions and derogations for countries and industries that some analysts said meant, if Russia did shut off flows, more severe curbs and sharing between states would be needed to guarantee supply.

One EU diplomat said it was ultimately in countries' own interests to help one another, since an economic crisis or a gas shortage in one - particularly in Germany - would ripple around the bloc.

"If Germany falls, every one of us will fall with Germany," the diplomat said.

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Reporting by Kate Abnett; additional reporting by Philip Blenkinsop, Giuseppe Fonte, Riham Alkousaa, Benjamin Mallet; Editing by John Chalmers and Susan Fenton

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